Abercrombie & Fitch Is Running Out Of Options

AbercrombieReutersCustomers attend the official opening of a new Abercrombie & Fitch store in central London March 22, 2007.

Abercrombie announced earnings today, and the results are ugly.

Sales fell 12% in the third quarter ended Nov. 1, while the company cut its profit outlook for the year.

“The third quarter proved to be more difficult than expected,” Abercrombie CEO Mike Jeffries said in a call with analysts Wednesday. “Traffic improved in August but then declined significantly in September and October.”

Jeffries cited weather, a highly promotional environment, and turmoil in the teen apparel market as reasons for the company’s performance.

“It is very clear that the young apparel sector in which we operate is going through a period of disruption and turmoil,” he said. “We expect conditions to remain difficult [for the rest of the year].”

The company said it expects per-share earnings of $US1.50 to $US1.65 for the year, down from its previous guidance of $US2.15 to $US2.35 a share.

Abercrombie & Fitch has said it plans to offset declining sales by phasing out visible logos on its clothing and offering trendier items.

But Eric Beder, specialty apparel analyst at Wunderlich Securities, said he believes Abercrombie is running out of options.

“What is going to turn the tide?” Beder asked in a note to clients. “Frankly, we have no idea.”

Beder notes that Abercrombie has already exhausted numerous turnaround strategies, to no avail.

“Abercrombie has already aggressively closed domestic locations, cut back on inventories, shifted away from
logo products, and cut costs,” Beder writes.

The once-leading teen retailer has struggled to stay relevant since the surge in demand for fast-fashion brands like Forever 21 and H&M.

Abercrombie & FitchGettyAbercrombie & Fitch has said it plans to offset declining sales by phasing out visible logos on its clothing.

Abercrombie has also been criticised for excluding plus-size customers and minorities in its stores.

For several months, Abercrombie has been touting a rebrand that apparently includes scaling back on logos and spraying less of its Fierce cologne in its stores.

But when Business Insider recently went shopping at the store, it was clear that little has changed since its heyday.

Beder says that a fundamental shift in teen customers is hurting Abercrombie, as well as competitors Aeropostale and American Eagle.

The mentality of teenage consumers is changing rapidly, according to Piper Jaffray’s recent Taking Stock With Teens survey.

Researchers found that today’s teens are increasingly spending on technology and food over clothing.

For the first time in history, teens are spending as much on food as they are on clothing, according to the analysts at Piper Jaffray. This is fuelled by trendy coffee drinks at Starbucks, the top food retailer among the demographic.

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